How to Improve your Business Credit
Do you know about your business credit score?
Most people know about their personal credit and why it’s important, but many business owners don’t know about their business credit score. Your business generates credit, too, and it’s important to know and understand it because it can affect your likelihood of receiving funding in the future on behalf of your business.
Why Do You Need Business Credit?
Your business credit signifies your business’s trustworthiness with business finances specifically, separate from your personal score. In the same way you need personal credit to secure personal loans and credit cards, you’ll need business credit to secure the same things for your business. If you can manage to keep your business credit up, it can be incredibly beneficial to your business in the future, in terms of borrowing and credit card benefits.
Establishing business credit is also important if you want to keep your personal and business finances separate. Not having these intertwined can help when you come to do your taxes, and in turn, make sure you’re keeping laws and regulations straight.
Diving further into this – if your business is registered as a corporation, it’s a separate legal entity. If it’s registered as a sole proprietorship, there’s not a legal distinction between you and your business. This means that all of the business finances are tied to you, the business owner. This makes it even more important to keep the sole proprietorship finances separate from your own. If you get audited by the IRS, it could leave you digging through documents trying to decern which ones were personal and which were for business. Keeping everything separate could save you time, money, legal liability, and the treat of getting fined.
How Do You Build Business Credit?
- First, establish it. If you establish an EIN (Employee Identification Number, like a Social Security number for your business) first thing, this is often the best way to separate your personal and business credit. This makes sure that you can start establishing your business credit because it acts just like your personal Social Security number would.
- Build it. Once you establish your EIN, you should report a few financial products within your business to Dunn & Bradstreet, Experian or other credit institutions. Then, the most important part is to pay for everything when it’s due. One of the most influential parts of your credit report is whether or not you’re paying your credit and loan bills on time. If you don’t, it will significantly lower your chances of getting a loan with good rates in the future. It’s normal to take out a personal loan to start your business, because most lenders won’t lend to newer businesses. But once you have the initial money and revenue, take out a business credit card or line of credit. You can use these forms of funding to invest in your business, and payback on a regular schedule. This way, you can establish your credit, build your score, and get other forms of funding later on.
- Experian, one of the top credit bureaus that report business and consumer credit, says that checking your business credit regularly and making sure the information is correct and current is important in improving it. You should also dispute your score if you think it’s inaccurate.
Along these lines, you should make sure you know exactly what factors are influencing your business credit. They’re calculated differently than personal scores and scale from 0 to 100. Directly from Experian, they’re based on:
- Number of trade experiences
- Outstanding balances
- Payment habits
- Credit utilization
- Trends over time
- Public record recency, frequency and dollar amount
- Demographics – like years on file, Standard Industrial Classification codes and business size.
If you know what’s going into your score, you’ll understand how to get the most out of it. Pay attention to these factors and monitor them closely through a business credit checker.
Keeping Track of Business Credit
Figuring out your business credit can be complicated, and keeping up with it can be stressful. It’s another number you have to worry about, on top of all the other numbers involved with your business. So, why not let FaaSfunds help you out? That’s the whole purpose of the FaaSfunds platform – we offer several different types of business loans and lines of credit in our marketplace, but we also help you monitor your business credit and figure out how to improve it. Even after you’ve been funded, we’ll help figure out what to do after. Click the button below to get started, and make your business credit easier to deal with.